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Comment by cs702 | Hacker News Reader

According to the McKinsey study mentioned in the article[a]:

* Two-thirds of global paper wealth is tied up in real estate valuations (residential and commercial).

* Paper wealth is now nearly 50% higher (!) than its long-run average relative to income, globally.

* Paper wealth and economic growth are no longer moving in sync, as they had in the past for a long time at the global level, albeit with some country-specific deviations.

Asset prices around the world, including property prices, are now in unprecedented territory; there is no doubt about that.

There are many possible explanations for this deviation from long-term norms, but they come broadly from two camps. In one camp are those who are not sure why they should even worry about this, because they believe the global economy is about to shift to much faster economic growth, driven by new technologies like AI, quantum computing, cheap sustainable energy, and space exploration. In the other camp are those who are quite concerned about the financial, economic, and political consequences if paper wealth reverts to historical norms in relation to global income.

Some of the smartest people I know are either in one camp or the other, with little overlap between camps. My perception is that there's no shared agreement as to what any of this means, or whether anything should be done about it.

[a] https://www.mckinsey.com/industries/financial-services/our-i...

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>faster economic growth, driven by new technologies like AI, quantum computing, cheap sustainable energy, and space exploration.

It always blows my mind a bit when people talk about the productivity gains of the future coming from cutting-edge "sci-fi" technology.

I've seen with my own eyes the insane productivity gains some knowledge workers can get simply through the use of hacky-but-effective domain-specific Python scripts. We're talking one person producing more benefit than an entire team by an order of magnitude.

I'm sure there are other tried-and-true technologies that simply aren't rolled out widely enough and constitute a massive amount of economic low-hanging fruit (especially in the developing world).

I'd push for them before I look to the stars for the next miracle technology.

Can you give examples of these "hacky domain specific scripts"? I love hearing about niche custom computing.

As an intern at my first job a few years ago I basically did something like that.

We had a data hunting that would go out into supermarkets and collect data, but oftentimes with errors. Supervisors would sift through all of them and spend 4-5 hours a day removing/fixing/joining faulty entries.

I saw that, wrote two Python scripts to automate it (~2 weeks from start to deployment). All that workload automated immediately, and to my knowledge it's still in use today.

Not the one you're replying to, but I'm my experience this means writing your own tools and automation for the job you do when none exist. (Or are too expensive.)

I've seen many shops where the amount of code for dev and QA tools significantly exceeds whatever product they ship.

Yeah, specifically in my business (e-commerce, selling used video games) we have a set of scripts that can create a full eBay listing simply by scanning a game's barcode, another one that generates sales reports and breaks them down with exactly the information that I want, one that interfaces with some hardware to automatically test the save function in Game Boy games, and some more to come in future (we're new!).

I saw some similar things in the accounting department at my previous employer, and on the flip side I've met many people who seem to spend an inordinate amount of time doing steps that a computer could do, but worse.

I think the important bit is to have tight integration between the person writing the code and the person with the domain-specific knowledge that the code is performing - ideally they should be the same person.

As we move away from seeing computer programming as a specialised skill for a class of elite engineers and towards something just generally useful like reading and writing, I can see this yielding huge dividends economically.

Being able to code puts you in the top 10% of the IQ bell curve. Being able to see the value in automating something and being able to implement it puts you in the top 1%.

That’s not meant as flattery, it’s just pointing out that the efficiency gains of universal computer literacy will not be realized.

"They used to say you could not teach women to read"

I disagree - we spend years from age two teaching literacy. It's a skill that needs practise, but it's a relatively new invention that has enormous benefits. Software is too.

(Mind blowing fact: The walls of jericho were built 2,000 years before writing was invented)

At a high level maybe, but basic coding is succesfully taught in middle schools. If you needed to be "10%" for that, those classes would fail horribly.

> will not be realized.

Not quickly, but give it a few decades. In particular, you will probably have to wait for another generation of teachers.

>At a high level maybe, but basic coding is succesfully taught in middle schools.

Exactly this. Not everyone can work for Google (or even for a B-grade software firm!), but in many instances all you need to do is string a couple of libraries together in order to get order-of-magnitude productivity gains.

Yes ! I call it software literacy. welcome to the dark side, we have cookies :-)

Not Python, but Ruby and HTML/CSS/JS examples:

I worked at an international company with its own terrible email marketing system.

I wrote my own email builder based on their templates that allowed me to visually build emails and then just copy and paste in the code!

I also wrote a Ruby script that iterated over a CSV/Excel spreadsheet file supplied on a regular basis to generate HTML page, which I then pasted into their horrible CMS!

The previous person in my job used to have to do all those things manually and it took forever!

The key win for me was convincing the head of IT to enable WSL on my work supplied Windows 10 Laptop!

Having access to Linux made everything possible!

Wrote a script to crawl databases by url and export their table schema into a format that could be consumed by an early big data processing language.

There was a whole team of people doing this job and this one script got through what a whole team of engineers were doing in about 30 seconds

Wrote a python script to extract data and produce spreadsheets/reports from the database of an ancient, custom, closed source FoxPro-based ERP software. By being able to create custom reports, I easily reduced the workload during tax time by a factor of 10. This replaced a process that involved manual review of hundreds of sheets of dot-matrix printouts for certain edge cases.

I often use this story as an example for people of how programming can save them time and make them more efficient. It's from the introduction to Automate the Boring Stuff with Python, which is also a good resource for them if they decide they do want to pursue such benefits: https://automatetheboringstuff.com/2e/chapter0/#calibre_link...

---

“You’ve just done in two hours what it takes the three of us two days to do.” My college roommate was working at a retail electronics store in the early 2000s. Occasionally, the store would receive a spreadsheet of thousands of product prices from other stores. A team of three employees would print the spreadsheet onto a thick stack of paper and split it among themselves. For each product price, they would look up their store’s price and note all the products that their competitors sold for less. It usually took a couple of days.

“You know, I could write a program to do that if you have the original file for the printouts,” my roommate told them, when he saw them sitting on the floor with papers scattered and stacked all around.

After a couple of hours, he had a short program that read a competitor’s price from a file, found the product in the store’s database, and noted whether the competitor was cheaper. He was still new to programming, so he spent most of his time looking up documentation in a programming book. The actual program took only a few seconds to run. My roommate and his co-workers took an extra-long lunch that day.

This is the power of computer programming. A computer is like a Swiss Army knife that you can configure for countless tasks. Many people spend hours clicking and typing to perform repetitive tasks, unaware that the machine they’re using could do their job in seconds if they gave it the right instructions.

>My roommate and his co-workers took an extra-long lunch that day.

If only that was what actually happened when people took initiative in this way...

I know that Python exists for a long time already but I tend to find it exactly one of those sci-if technologies in combination with the extremely powerful hardware everyone has these days. It’s a matter of time until the real big masses start using it and contributing. I’m pretty sure that whatever big solution there will be, that it will be made in or with Python.

Can you create a random string in Python and have it executed by Python? Self-aware languages always make me fantasize.

> Can you create a random string in Python and have it executed by Python?

Reminds me of "93% of Paint Splatters are Valid Perl Programs":

https://www.mcmillen.dev/sigbovik/

With Python's terrible package management?

Better than js

How the hell

The thing that will really trigger this advance is someone solving Python package management :)

> In the other camp are those who are quite concerned about the financial, economic, and political consequences if paper wealth reverts to historical norms in relation to global income.

What about the camp that is worried that paper wealth doesn't revert to norms? I mean, if a person doesn't already own a house, then inflated prices work against them.

That’s more of a personal problem. Paper wealth reverting to norms would be more of a societal problem, and thus is more important to prevent.

Translation: too bad, you'll never own anything.

Just eat lentils and be frugal

I don't think that's so bad unless you need that ownership to build wealth. In this country, it seems a lot of our wealth was built up via land ownership. Contrast the US, which encouraged wider land ownership, with Mexico which granted land to a wealthy few and excluded the lower classes.

If we can come up with a consistent policy scheme(taxation and incentives) which can undo land ownership as being a sure-fire way to build wealth(maybe a land value tax?) then it's perhaps not so bad to have a nation of renters.

A class of people unable to afford a home sounds like a societal problem.

A class of people unable to afford housing is a societal problem. Unable to purchase a home in a specific city is not nearly so obviously a problem. (Much of Europe seems happy to rent for life.)

Much of Europe has to rent for life, but isn’t happy about it.

(at least in my experience of like everyone I know).

I’ve got a couple close friends who relocated to Europe and many colleagues. All are in high-tech and all seem perfectly content to rent (which I don’t understand but my close friends assure me it’s the case [and when something breaks or leaks in my house, I do understand some of the appeal]).

Maybe they are happy to rent because they are temporarily in Europe?

Not really. In EU, 70 % of population owns, while 30 % rents:

https://ec.europa.eu/eurostat/cache/digpub/housing/bloc-1a.h...

But if economic opportunity is concentrated in cities that are too expensive for average working people to live in (even when renting instead of buying), then this is a societal problem. Even if the shift to working from home for some occupations becomes permanent, not all jobs can be performed from home.

While some metropolises such as Tokyo seem to be set up well for providing housing at a wide range of price points, others such as the San Francisco Bay Area and Los Angeles do a much worse job; there are some people who regularly commute 2-3 hours each way from these metro areas because this is all they can afford, yet the job markets in the Central Valley (near the Bay Area) or the Inland Empire and Antelope Valley (both near Los Angeles) areas are rather anemic at best. For many of these people, the choice isn't between a condo in Fremont versus a single-family house in Tracy. Instead, it's an apartment in a place like Stockton or Modesto versus moving outside of the orbit of the Bay Area; that's how bad the housing crisis has gotten for many people.

The chief cause of this is zoning regulations and other policies in the Bay Area and Los Angeles that discourage denser development, thus encouraging sprawl further and further out; hence, the "drive until you qualify" phenomenon. The normalization of mega-commuting has social and environmental consequences.

Yes, there are cheaper metro areas, but these cheaper metro areas tend to offer fewer job opportunities compared to the more popular metro areas. Part of what fueled the social divide between "blue state" and "red state" America is economic opportunity being increasingly concentrated in a handful of coastal metro areas, while these opportunities have largely failed to trickle down to much of rural America and the Rust Belt.

What's needed are two solutions: 1. Change the zoning policies of certain metro areas in order to accommodate the demand through densification instead of sprawl. 2. Find ways to encourage the economic development of areas outside of the coasts.

What about a Singapore style solution? As a city state, they don't have the benefit of having anywhere else to go, so public housing schemes (government provides affordable apartments to rent, no short term speculations allowed) are the main way to go. Or we could make housing depreciate like in Tokyo (and allow for low end small rooms without central heating).

Sadly public housing in the United States has been a policy failure that's tied to our issues regarding poverty and race. The only way I see public housing working in an American context is if it was seen to benefit the middle class, kind of like how FHA loans and the Fannie Mae and Freddie Mac programs exist to help middle class households get mortgages with low down payments. I also know that some Bay Area municipalities have below-market rentals and for-purchase developments; some municipalities require all significant housing developments to set aside some below-market units.

Disclaimer: I grew up poor and I have relatives who lived in public housing; the environments they lived in were very rough, not only in terms of the quality of housing, but also in terms of living in crime-ridden neighborhoods. Now, I'm not saying that public housing has to be that way; I've heard good things about Singapore's public housing.

I don't think "public housing in the USA" and "public housing in Singapore" are the same thing at all. The former was rent subsidized or even free housing given to the poor. The latter is probably subsidized socially, but is aimed at the middle class and involves letting people "buy housing" from the government, they aren't slums that are given away.

The only thing that Americans might hate about it is that they are universally 30 story concrete apartment buildings that Singapore is selling to its citizens at affordable costs. If you want detached, that is the private market and will cost a lot.

Singapore's public housing system is out of control as well. If you meet income requirements you can buy an HDB. Currently backlog for new HDBs is ~4-5 years. You can't buy one unless you are married or over 35 years old. One new HDB development was 10x oversubscribed. Highly desirable HDBs are like winning a lottery, after 5 years you can sell and keep the appreciation (gov't is looking to clawback in the future). People "COV = cash over value" to get HDBs on the secondary market. 1000 sq ft HDBs can cost $1M SGD.

> But if economic opportunity is concentrated in cities that are too expensive for average working people to live in

Maybe an "opportunity" that doesn't provide a living wage isn't actually an opportunity at all?

3rd solution (in addition) - invest in rail to areas with cheaper housing and more land. If BART went to Stockton for example.

There are some rail options for those commuting from Stockton:

- The Amtrak San Joaquins train (https://www.amtrak.com/san-joaquins-train) connects Stockton with Richmond, where passengers can transfer to BART.

- For those headed to Silicon Valley, the Altamont Commuter Express runs from Stockton to San Jose (https://acerail.com)

I'm looking forward to the California High Speed Rail project being completed. This will make a commute from places like Merced, Madera, and Fresno much more feasible. Currently it's possible to drive from San Jose to Fresno in less than three hours; the bullet train will likely cut the duration of this trip by half.

I agree with you; it would be nice to see some nice transit-oriented developments spring up around train stations in the Central Valley.

With you almost all the way but:

> there are some people who regularly commute 2-3 hours each way from these metro areas because this is all they can afford, yet the job markets in the Central Valley (near the Bay Area) or the Inland Empire and Antelope Valley (both near Los Angeles) areas are rather anemic at best.

Just move. If you don’t, I find it hard to be sympathetic. Family w/e you can make it work. This is peak American bullshit to drive 2 hours each way to work and if you are putting up with that it’s on you.

Yeah, there comes a point where someone must accept defeat regarding the Bay Area's unaffordability. Mega-commuting for more affordable housing sounds appealing on paper but quickly gets draining and is unsustainable, from both a personal and environmental standpoint. I used to commute 50 miles each way every day for a few months back in 2015 and ended up sucking it up and paying the higher rent to live closer to the office due to the effects the commute were having on me. I believe part of the reason why San Joaquin County had so many foreclosures in 2008 was because of mega-commuters dealing with $4+/gal gas for the first time.

I don't mind doing a long commute once or twice a week, especially when I have flexible work hours, but anything more often than that becomes draining.

Same difference. Rent prices and house prices are tied. If houses are unaffordable, so is rent.

Ah yes, let’s lock out entire swaths of people from being able to purchase any sort of permanent dwelling. All hail our glorious landlords.

It's exactly the other way around. "Paper wealth" is nothing, everyone can get enormous wealth by adding five zeros to the dollar bills. It has no relation to the real world means of production, to the GDP. If house prices lose 80% tomorrow all factories will be intact, all people will still have the same skills to perform their work. The impact would be artificial. On the other hand, not being able to find ample living space is a real problem and a drag on the economy.

> Paper wealth reverting to norms would be more of a societal problem

What is the problem again? Rich people getting less rich? Imaginary number of net wealth getting lower?

A fair few pension funds and charitable endowments have wealth locked up in property. Not saying that alone justifies protecting asset values, but it does have societal significance worth bearing in mind.

Here are a few obvious problems:

- retirement plans often rely on equity from real estate, and so do some nursing home admissions

- as per 2008, when people have more money remaining on a mortgage than the underlying asset (home) is worth, some of them will declare bankruptcy

- when rich people suddenly have a lot less nominal cash, they can't fund their businesses by liquidating assets, so they cut costs, and then those costs have to find new jobs, which can take years and is hugely disruptive for everyone[0]

Overall there's an argument to be made for doing it anyway, but there are pretty clear downsides to causing an economic crisis, even if the economy eventually reaches a better equilibrium state.

[0] note that I'm not supporting trickle-down economics, just warning about the disruption that suddenly changing the distribution of wealth will cause

2008 showed us where this road goes. The wealthy are the tiniest sliver of the group of people whose lives will be ruined. If anything, when the dust settles the truly wealthy (those whose wealth isn't riding on leverage) will end up even wealthier because they'll be sitting on capital that they can use to buy up even more assets at fire sale rates.

> truly wealthy (those whose wealth isn't riding on leverage)

incredibly convenient to just dismiss those people who lost wealth this way, and claim that the "truly wealthy" is to be blamed.

I...did neither of those things?

I guess you loved 2008 bailouts then and will be happy to bail out wealthy people again next crash.

Yes this is a big problem in the west because the government has incentive to ensure the price of houses continue to go up. This is, apparently, especially an American problem where there’s a social stigma about renting (though it’s going away)

Unsure about what it's like to rent in the US but in Australia it's horrible. Really weak laws around tenants rights.

Semi strong laws but impossible to force a bad landlord/agent to follow them. Fair Trading are useless idiots.

One thing to keep in mind is that when values of an asset are inflated, the nominal price of the asset can change to match the underlying value of the asset (ie price falls)or the value of currency can change to justify the current price of the asset (ie price stays the same and the currency weakens).

I think people are biased towards assuming the first one whereas the are structural reasons relating to Ray Dalio's long term debt cycle argument why the latter is more likely at this specific moment even though historically the former happens more than the latter.

Inflating the currency is much more likely. It is how the government will escape a crisis when they cannot lower interest rates any more. That said, I think land is finite and will keep pace with inflation.

"Paper wealth" is an odd term that's not used in the study. It seems particulary odd to call real estate investments "paper wealth." After all, land and buildings are pretty darn real, hence the name.

These investments may be overvalued and if prices change, owners will find they're not as wealthy as they thought, but they'll own the same thing.

Also, what does it mean to say that wealth is "tied up" in real estate? Prices going up doesn't change anything real. The effect might be more resources going into construction and renovation, though.

Debt and financial derivatives backed by inflated asset prices might be the problem, as in 2008. Those income streams might be less solid than they look.

If you have to spend 5x your net worth on a house, that’s capital that is not spent on building businesses, whether through direct investment (buying tools or paying workers at your own business) or indirect (through stocks or other securities).

Your debt is someone else's income. They could spend it on any of these things, assuming you keep paying. (All you get is a house, though.)

Devil's advocate: Doesn't that mean the person who sold you the house now has the money to invest?

It seems to me that wealth isn't being lost. It's being transferred to those wealthy, smart, or lucky enough to have invested in real estate.

I think in most cases it's being transferred to someone older than you.

Real estate is a seniority system.

Well yes, in a sense it has to be that way, because people aren’t born owning anything but eventually younger people will end up with everything when older people die.

However, sometimes the transfer is via inheritance and sometimes it’s by selling property. I wonder to what extent retirement could be considered to be funded by real estate sales? It’s certainly something people do: sell the house and move somewhere cheaper.

Asset prices are merely a function of discounted future cash flows. As interest rates are lower, the discount on future cash flows decreases. The world is also much more stable than it was in the 1950s-1980s - look at the state of Asia now and then. That means there is a lower risk discount on future cash flows.

If paper wealth takes a shit the people that will be impacted will be retirees and the wealthy, not your average joes.

Two-thirds of paper wealth is in real estate. For most families that have any wealth, the biggest component of that wealth is the current valuation of the home in which they live. If the valuation of real estate in relation to income globally reverts to long-term historical norms, a lot of regular people would be affected, not just the wealthy.

For someone for whom the biggest component of that wealth is the current valuation of the home in which they live, the fluctuations of that price affects only the theoretical number, but does not affect their life in any meaningful way; they own and use the exact same asset as before, they are not trading it.

These price fluctuations matter for people who either want to invest into real estate or withdraw previous investment, not for people who want to live in their current house.

That's true except for cash out refinancing. Lots of middle class folks take out home equity loans to pay down credit card debt. This was a big component of the 2008 financial crisis. That and banks leveraging 40-1 and betting big that housing would never decrease in value.

> take out home equity loans to pay down credit card debt

I'm sure I'm preaching to the choir, but this is a terrible strategy. In a perfect world it cuts the interest payment a lot, but the risks are significant.

The risk is magnified if you’re the type of person with a track record of running up credit card debt.

It really depends. If you're not moving or borrowing against the value, does the value of your house matter that much?

> If the valuation of real estate in relation to income globally reverts to long-term historical norms […]

a lot of everyday people will tell you that just won’t happen. that governments perceive the risk of falling home values to be so large that they will do everything in their power to prevent that from happening.

That does seem to be what happens. In Australia, if the prices of houses even look to be standing still, the government will hand out taxpayer money to buyers to prop the prices up. Or they will let people withdraw from their retirement funds to buy.

I’m not sure I agree with you here. Average Joe has been investing in houses just as eagerly as Rich Ralph. The difference is that Average Joe will be brought to his knees if house prices should fall. Rich Ralph will still be rich, just a little less so.

I think that in the fullness of time, it will be seen that today’s high asset prices were directly and unambiguously a consequence of extremely low interest rates and the creation of money by central banks and nothing more than that. When returns on lending are low, investors have to switch to riskier asset classes in order to generate the returns that they need to service their future cash flow requirements. For example, pension funds have to generate a certain amount of cash flow to cover their future pension liabilities, which are fixed and unchangeable. When central banks make money cheaper by lowering interest rates, pension funds have to shift to classes of assets that generate higher cash flow, even if that means taking on more risk. They don’t really have a choice in the matter.

There is a positive feedback loop here. Low interest rates cause large investors like pension funds to shift to riskier assets. This stimulates the risk appetite of retail investors, who pile in when they see the trend of increasing prices in these riskier assets, such as stocks and houses. The increase in asset prices reduces the effective returns on those assets, forcing pension funds another large investors to shift to even riskier things, like venture capital. Rinse and repeat.

I suppose nobody can say for sure that there hasn’t been some kind of long-term shift in global economic growth because of changes in technology, but it sure seems to me like cheap money is a more reasonable explanation for all of the craziness we have been seeing in the past year or two.

Average Joe will be brought to his knees if house prices should fall

I'm not so sure - it depends on how heavily leveraged buyers are and what % of them have used price increases to secure more capital. If your home has significantly appreciated in value but you haven't taken equity out of it, it could be said that you were leaving money on the table but only if you knew of a better investing opportunity. If you just let the property appreciate and didn't securitize that gain, a decline from peak values doesn't hurt because you have no loan to service.

I had the same thought but would add there aren't many variable interest rate home loans anymore? If any?

This source [1] also says HELOCS or 2nd mortgages are only 8% of owners, 1/2 of what they were in 2009. But that was 2018 maybe pandemic upped the %.

So to get another 2007 meltdown this thesis would be that a lot of people would have to lose their jobs first. Interest rates going up wouldn't matter if they make the same (or more) money.

But could argue collapsing real estate values would cause weak job market.

[https://www.socialexplorer.com/blog/post/once-viewed-as-easy...]

But all the savvier investors will sell the inflated assets at higher prices before the dip/fall and go on to use their increased capital to over-inflate the next hot asset class to the detriment of the average Joe.

You're not thinking far enough. Of asset prices crater, then we'll have an acute deflationary shock, which will prompt the fed to inflate, and that is what will screw the poor.

Inflation screws the rich, not the poor. Statistically, the wealthy have way more cash than the poor, while the wage-earning population will get increased income along with inflation.

No it doesn’t, most of the wealthy do not keep large sums of cash on hand, it’s invested in other assets that grow with inflation.

The wealthy are also the hands into which the printed money goes, and it also makes the real cost of leveraged investments lower. Triple threat!

Most of them keep 10% of their portfolios in cash or treasury bonds.

When inflation is low, yes. But as inflation goes up, interest rates will increase to fight it while at the same time, households reallocate their wealth.

> will get increased income along with inflation.

By magical means of course.

Inflation is a sneaky way to give the poor a wage cut. How else do you suppose the fed is supposed to be able to increase employment using inflation?

Edit: down voted, ok here is a citation from an economics Nobel laureate:

https://krugman.blogs.nytimes.com/2010/02/13/the-case-for-hi...

> when you have very low inflation, getting relative wages right would require that a significant number of workers take wage cuts. So having a somewhat higher inflation would lead to lower unemployment

By its very nature, giving laborers inflation-matching pay raises counters the explicit, intended policy effect of using inflation to increase employment. Or, your employment model could be relying on "let's use increasing prices to light a fire under people's asses to get them to look for jobs". Which, if you ask me, as a neoliberal programme is far crueler, far more pernicious, than any slash-public-services scheme that fiscal conservatives dream up.

> By its very nature, giving laborers inflation-matching pay raises counters the explicit, intended policy effect of using inflation to increase employment.

Suppose we print a bunch of new money and hand it out to everybody. Now people have money in their pockets and want to spend it, so demand goes up, so prices go up, and we get inflation.

But most goods and services have elastic supply. We can make more of most things given higher demand. So companies make more of stuff and have to hire more people to do it; unemployment goes down. Hiring people is supply and demand again. Demand goes up, wages go up.

Then, if you stop printing money, the demand (in real dollars) goes back to the original level once prices and wages have both increased. If you continue to do so (i.e. a constant rate of inflation), the extra demand is sustained by the continuous infusion of money.

Now suppose you do the same thing, but instead of giving the new money to individuals, you give it to the rich, or to borrowers in the form of low interest rates. They use it to bid up housing prices. Then people have to work more to afford the same house or apartment, which lowers unemployment. This is obviously bad and screws the poor.

The most important thing is who gets the new money. It needs to go to individuals, not borrowers, not institutions.

> The most important thing is who gets the new money. It needs to go to individuals, not borrowers, not institutions

Government by its very nature must generally give out newly created money to the wealthy (handing out money to the public directly does not get low income housing built, or highways, or military bases, or warships, or scientific research... To "get shit done" you must give it to already-wealthy contractors), and by its current construction, the interest payments to create that money goes to banks. Now if you want to argue that "government maybe should not be doing a lot of that shit", perhaps you do have a concrete proposal for reducing the wealth divide.

> Government by its very nature must generally give out newly created money to the wealthy

Why?

Last year they sent everyone a check. They could do that.

You're missing the point.

Sure, they can do that sort of thing from time to time to make people like you happy, but the primary spending of government, as in, "to do shit", cannot be structured like that.

Are you arguing that 100% of government spending should be stimulus checks?

100% of government printing money should be.

so, just to be clear: what you are saying, is all government services, bureaucratic expenditures, military budget, FBI budget, Education, Energy, social services, social security shortfall, disaster relief, interest payments on the debt, medicare, universal health care, and so forth should come entirely from the collected tax base. Perhaps we can even be very careful about this, to avoid politicians abusing "projected revenue" by mandating all of these line-item expenses of the government in any given year cannot exceed the previous year's tax revenue? And if the government decides to exceed that figure, 100% of the overshoot must be somehow redistributed to the people, directly.

I'd be down. Count me in on your reform program.

Cash-flow producing assets become more valuable during inflation.

The rich own assets, they financed these assets with debt. Debt becomes less burdensome with inflation, increasing their equity.

At the same time, lendors lose with inflation. But who are the predominant lendors now? Life insurance companies, pension funds, mutual funds, household / nonprofits, state and local govts., etc.

All of these institutions seem to be an aggregation of middle-class / poorer people vs. elites.

If you're Elon Musk you own Telsa. You're main source of liquidity is likely cash from a revolver[1]. During inflation, your debt becomes relatively smaller to your Tesla equity. Your net equity becomes larger.

I think this just leads to more inequality, more corporate control, and weaker labor bargaining power.

We'll see - hope its ok.

[1] form of debt, where Elon is the lendee and is using Tesla stock as the collateral

That's funny; my wages didn't increase to match inflation this year when I received my performance review. None of my family members or friends also received such raises. Yet the prices of everything else went up around me, especially housing. Heck, even the Dollar Tree wants 25% more.

In a bout of inflation, not all prices increase at the same rate at the same time; this is known as the Cantillon effect (https://en.wikipedia.org/wiki/Richard_Cantillon).

>Inflation screws the rich, not the poor.

This is a pretty bold statement given that it is the opposite of all conventional wisdom, and historically those concerned with the poor have argued that inflation is a way for the rich to rob the poor. For example, the "misery index" in the 70s was the sum of inflation and unemployment, because it tracked how much wages were falling and how much unemployment there was.

So this "new economics" that says inflation is good for the poor is pretty stunning -- is it something you figured out on your own or do you have a reference for statisticians or economists making this case?

> Statistically, the wealthy have way more cash than the poor, while the wage-earning population will get increased income along with inflation.

Let's take a look at what is going on:

Over the past year inflation is up 6.2%, so let's deflate:

    - real SP500: +25% 
    - real bonds: -7.8% (PIMCO total return)[2]
    - real wages: -1.2% (using BLS data)[1]

"Real average hourly earnings decreased 1.2 percent, seasonally adjusted, from October 2020 to October 2021."[1]

Now definitions of "rich" are always arbitrary, but if you are rich you have most of your wealth in the form of assets -- stocks, bonds, etc. If you are poor, most of your wealth is your future labor - wages. That's another way of saying that the rich make money from passive income while the poor have to work.

So inflation reduces wages but the effect on passive income is mixed. Stocks go up and bonds go down. A typical wealthy person will own a mix of stocks and bonds and will generally own more stocks than bonds, so on balance their holding of equity protects them and their wealth still increases. But that's not true for the poor, who have only their wages.

This is why conventional wisdom about inflation mostly hurting the poor is correct, and the galaxy-brain takes that inflation helps the poor and hurts the rich is incorrect. Wealthy people can shield themselves from the rising cost of consumption while the poor cannot.

[1] https://www.bls.gov/news.release/realer.htm

[2] https://www.pimco.com/en-us/investments/mutual-funds/total-r...

> Of asset prices crater, then we'll have an acute deflationary shock, which will prompt the fed to inflate, and that is what will screw the poor.

The problem with this is in what the Fed does with the new money. They currently use it to buy back government debt, which goes to the rich, i.e. existing bondholders. What they should do is to give it out to all citizens equally, which is the opposite of screwing the poor.

It screws the poor who used birth control.

I think you have pension funds exactly backwards. They are typically managed with the goal of reaching their assumed rates of return at minimal risk. With performance so far above assumed returns, if anything pension funds can afford to take on less risky assets and still meet their goals.

This was in the news recently: CalPERS (a giant pension fund of California state employees) is going to add risk in the form of 5% leverage. See https://www.pionline.com/pension-funds/calpers-adds-5-levera...

> As interest rates are lower, the discount on future cash flows decreases

That is one of the causes of high asset prices. Another is that cheaper debt allows more people to borrow money to buy assets.

> If paper wealth takes a shit the people that will be impacted will be retirees and the wealthy, not your average joes.

If paper wealth drops average joes will also be affected. Employment depends on consumer spending, and a big drop in asset prices can have a significant impact on spending through wealth effects (https://en.wikipedia.org/wiki/Wealth_effect)

> state of Asia now and then

Climate change and sealife collapse is getting pretty serious for SE Asia and I don't know what to believe about India water supply.

> If paper wealth takes a shit the people that will be impacted will be retirees and the wealthy, not your average joes.

Also the elephant in the room is that property taxes are a derivative of your net worth, not your income. So if paper wealth (due largely to RE) continues to outpace income then we're in for a big hurting soonTM.

This is the hilarious part about critics against a wealth tax - we already have a wealth tax. I live Texas and people are about to have a brutal wake up call when they can't afford $10k/year in taxes because their $200k ranch they bought 5 years ago (and cost them $40k down) is now worth $500k.

Note - I have mixed feelings about the proposed wealth tax. The proposed implementation was misguided.

I think property taxes in Texas are one the biggest reason our house prices have remained somewhat sane.

You clearly haven't been to Austin... there's nothing sane about property values here.

It's also the fasting growing city in the nation, and I think it'd be worse if we didn't have a ~3% property tax.

But probably better if they didn't have zoning.

Austin is utopia of sanity compared to Toronto where I live.

Am I crazy? My friend owns a house in Sacramento. We (I'm in Texas) compared notes, and our property tax rates are comparable.

Anecdata: I lived in the bay area and moved to Austin, TX. My tax rate went from ~1.5% to ~2.2%

I believe property taxes in Texas can be reevaluated when the value changes while you own the home. In California it is only upon sale.

Oh that makes sense, thank you. In Texas they drive around and reassess your house in the springtime. Which is why all of the improvements to my house will be on the backside! Meanwhile the both of us are very recent homeowners, so the reassessment hasn't happened yet.

I do have a friend that has 100% service-connected disability... And Texas has a 0% property tax for veterans with that categorization. He's thinking about moving

No such "problems" in California due to prop 13 (yay...)

You don't seem to be taking into account wealth other than real estate there.

The world was more stable 1990-2020 than it was 1950-1980, yes. I don't think it's a good bet to assume that stability will continue. The pandemic will peter out, sure. But the US is shifting toward isolationism, China is heading for a population crash, Japan is rearming, and Europe is rethinking its strategic position in light of all that. That doesn't necessarily add up to increased conflict, but it does point to a lot of uncertainty.

That leaves out the decarbonization impact on the Middle East and other fossil fuel providers like Russia and Australia.

> they come broadly from two camps

One camp is the "this time is different" camp and the other camp is the camp that has been proven correct (eventually) in every historical instance of an asset price bubble. It should be noted that the first camp ALWAYS has a very good argument (usually involving technological change) about why this time is in fact different, but it always turns out to not be different.

Past results don't guarantee future outcomes

Money doesn't disappear when you buy real estate. It goes to the person that sold you the real estate, and they can choose where to put that resulting capital.

Money isn't capital. Money represents capital. When they try to spend that windall money, in aggregate, it will cause inflation, and the money will be proven to represent less capital than previously assumed. The seller will thrive, but non-sellers will suffer higher prices.

My point is that one industry isn't starved because an allocator buys assets in a given asset class such as real estate. The money doesn't disappear, it keeps moving.

you mean to tell me this is some kind of economy?

Income = expenditure is one of the most intuitive but least grasped concepts of introductory economics. It's interesting to me that this is the case.

>[...] they believe the global economy is about to shift to much faster economic growth, driven by new technologies like AI, quantum computing, cheap sustainable energy, and space exploration.

>Some of the smartest people I know are either in one camp or the other, [...]

And you believe them?

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